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How do bail-in amendments in Directive (EU) 2017/2399 affect the subordinated bond yields of EU G-SIBs?

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  • Velliscig, Giulio
  • Floreani, Josanco
  • Polato, Maurizio

Abstract

Using a diff-in-diff analysis, we compare the yield reaction of subordinated bonds to the implementation of the Directive (EU) 2017/2399, for EU G-SIBs and smaller banks. We find an increase in the yields of EU G-SIBs relative to smaller banks of between 0.24 and 0.31 basis points. Such repricing indicates higher bail-in expectations among subordinated bondholders as the Directive’s provisions improve the effectiveness of the bail-in. Moreover, this result implies the higher risk profile of subordinated bondholders following the implementation of the new Directive and suggests that its measures might be effective in restoring market discipline.

Suggested Citation

  • Velliscig, Giulio & Floreani, Josanco & Polato, Maurizio, 2022. "How do bail-in amendments in Directive (EU) 2017/2399 affect the subordinated bond yields of EU G-SIBs?," Journal of Empirical Finance, Elsevier, vol. 68(C), pages 173-189.
    • Handle: RePEc:eee:empfin:v:68:y:2022:i:c:p:173-189
    DOI: 10.1016/j.jempfin.2022.07.007
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    Cited by:

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    More about this item

    Keywords

    Non-preferred senior debt; Subordinated debt; Bail-in; Creditor hierarchy; Resolution;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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